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Bush
Touts Health Savings Accounts
By
Fred
Adams
Vice President- HSA
for America
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In his
2006 State of the Union address, President Bush mentioned
Health Savings Accounts (HSAs), and his priorities of confronting
the rising cost of health care, helping people afford the
health insurance they need, and making coverage portable so
that people don’t lose their health plan when they change
jobs. HSAs, which now cover over 3 million people, are
already lowering people’s costs, in many cases are totally
portable, and provide powerful incentives that will reduce
healthcare costs for all.
Health
savings accounts allow individuals to purchase lower cost
high-deductible health insurance, and establish a savings
account in which a family can make a tax-deductible deposit
of up to $5450 each year to be used to cover future medical
expenses. Money can be withdrawn tax-free to pay for
covered expenses before the deductible is met. It can
also be used to cover expenses that are not normally covered
by health insurance, including dental treatments, eye glasses,
alternative therapies, and even household medical expenses
like aspirin. This in effect makes all these expenses
tax deductible.
If the
money is not withdrawn to cover medical expenses, it grows
tax-deferred like an IRA. The money can be withdrawn
penalty free at age 65 for any reason, and tax-free if it
is used to cover any medical expenses. This would include
Medicare premiums, nursing home charges, or long-term care
insurance.
In addition
to tax savings, HSA owners enjoy lower rates on their health
insurance. These plans are typically 30%-40% less expensive
than traditional plans. Small companies that switch
from group plans to funding individual HSA plans for their
employees save even more. Any money the employer contributes
to the HSA for the employee is tax-free, and if it is an individual
plan and the employee leaves the company, they can take their
health insurance with them.
For the
past 60 years, most health care has been paid for and controlled
by third parties such as the government, insurers, and employers.
Consumers rarely compared prices or quality of service when
shopping for health care – partly because this comparison
was usually very difficult or even impossible, and partly
because the price often just didn’t matter to the consumer,
who was only responsible for a moderate co-payment.
Today
people are waking up to the idea that they should look at
their health insurance the way they look at their automobile
insurance or homeowners insurance. The coverage is to
pay for the major expenses, not the routine oil changes.
Because HSAs require that the insured cover the first $1000
or more in health expenses, there is incentive for the consumer
to demand information about health care pricing. This
puts market pressure on the providers, and is the beginning
of dramatic change in the system.
The most
exciting thing about HSAs is this potential impact they could
have on the cost of health care. No system has yet been
devised in the history of mankind that does more to increase
quality and lower prices than a competitive market system.
As more and more consumers begin to own health savings accounts,
health care providers will be forced to compete for their
business by providing better quality service and better prices.
The other
factor in play is the financial motivation the individual
will have to stay healthy. The vast majority of health
care spending today is due to degenerative diseases such as
high blood pressure, diabetes, metabolic syndrome, cardiovascular
disease, and other modern ailments that are primarily the
result of lifestyle choices. The consumer who wisely
spends his HSA dollars on preventive care (which can be
done tax-free) and pays attention to diet and exercise could
be rewarded with a substantial amount of money in their Health
Savings Account by age 65. As an epidemic of diabetes
and other obesity-related diseases loom over us, it is nice
to see the government setting up a system that rewards healthy
behavior.
Health
savings accounts have the potential to be a powerful force
of change in the healthcare system. By instituting competitive
pressures, encouraging greater price transparency, and rewarding
consumers who are proactive about their health, the growing
adoption of Health Savings Accounts will help make health
care more affordable for everyone.
Wiley
Long
President
HSA
for America
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